Activist investor Elliott Management has not yet publicly disclosed its specific demands regarding BP, but the hedge fund’s history of advocating for changes in large corporations can provide insight into potential strategies it may pursue.

In recent years, Elliott has engaged with various companies in the energy and natural resources sectors, including UK-based SSE and Anglo American, as well as US firms Phillips 66 and NRG Energy. In nearly all instances, Elliott has sought significant structural and strategic transformations, often recommending the divestiture or restructuring of major business segments.

As BP prepares to present its plans during a capital markets day this month, analysts have begun to assess the possible strategies that Chief Executive Murray Auchincloss may consider, predicting that Elliott is likely to explore similar avenues.

Frequently, although not always, Elliott has advocated for alterations at the board or senior management level, and analysts anticipate it will take a similar approach with BP. Here are four primary changes that experts believe Elliott may advocate for.

Shift Focus Back to Oil and Gas

BP distinguished itself among major oil companies when it committed in 2020 to a 40% reduction in oil and gas production by 2030 as part of its net-zero strategy, a move that earned positive recognition from environmental groups.

However, as a substantial valuation gap has emerged between BP and its American oil counterparts, the company has already softened this target. In February 2023, former CEO Bernard Looney indicated that BP would only aim for a 25% reduction, targeting an output of 2 million barrels of oil equivalent by 2030. Auchincloss is reportedly considering abandoning this goal altogether.

Analysts suggest that Elliott may advocate for increased investment in oil and gas production to sustain or even enhance output levels. Giacomo Romeo, an energy analyst at Jefferies, has proposed that BP might recalibrate planned asset sales and expedite the development of gas resources in the Haynesville basin, while also raising its liquefied natural gas (LNG) volume targets due to several upcoming project launches.

According to Allen Good from Morningstar, the most probable course of action for Elliott at BP would be a strategic pivot emphasizing oil production while downsizing low-carbon investments, similar to Shell’s recent approach.

Reduce Green Investments

BP has been increasing investments in renewable energy and other non-fossil fuel sectors, which it refers to as its “transition growth engines”: bioenergy, electric vehicle charging, convenience retail, hydrogen, and renewable energy.

Funding for these five sectors has grown from 3% of its capital expenditure in 2019 to 30% in 2022. BP previously outlined plans to escalate this share to over 40% this year and up to 50% by 2030.

Romeo anticipates that Elliott will call for a reduction in BP’s exposure to low-carbon initiatives by either divesting certain assets, withdrawing from specific projects, or spinning off particular business units.

Biraj Borkhataria, head of energy transition research at RBC Capital Markets, also expects Elliott to push for minimized capital allocation to these ventures, noting that BP’s recent agreement to spin off its offshore wind division into a capital-light joint venture with Japan’s Jera is an early sign of such an indication.

Alastair Syme from Citi believes Auchincloss may soon reveal a significant cut in low-carbon investment plans during the investor day, projecting that such expenditures could drop to between 5% and 10% of total capital spending.

Consider Spinning Off Retail or Shale Operations

Analysts view several of BP’s assets as currently undervalued. Historically, Elliott has advocated for companies to split or unbundle divisions that are considered to be undervalued relative to their potential worth, and Romeo thinks the activist might seek to “monetize assets that can achieve higher valuations, such as infrastructure and retail divisions.”

Borkhataria at RBC Capital Markets has identified three possible spin-off opportunities for BP aimed at unlocking value: the first is BPX Energy, its US shale operation, which could be valued around $20 billion. The second is its lubricants division, estimated to be worth between $8 billion and $10 billion. The third would be its fuels marketing and retail arm, including its network of gas stations and convenience stores, potentially valued at $30 billion to $40 billion.

Syme from Citi highlights the potential of the shale division, noting that a partial IPO could help establish market value for acquisition considerations within the US shale sector, accompanied by a similar move for the fuels segment, which he values at more than $35 billion.

Potential Changes in Leadership

Helge Lund has served as BP’s chairman since January 2019, overseeing the selection of Bernard Looney as CEO, his subsequent dismissal in 2023 due to undisclosed relationships, and appointing Looney’s former deputy, Auchincloss, as his successor.

Lund, who previously led BG Group, has been scrutinized regarding the adequacy of due diligence conducted during Looney’s appointment, particularly in light of persistent rumors surrounding his personal relationships.

“Given the circumstances surrounding the previous CEO’s exit, we believe any activist intervention would likely call for a leadership change at the chairperson level,” stated Borkhataria.

Both Lund and Auchincloss were instrumental in pushing for the significant shift towards green solutions, a strategy that appears to have faltered in gaining investor confidence.

Another activist group, Bluebell Capital, had previously called for Lund’s resignation due to BP’s disappointing performance.

According to Romeo from Jefferies, Elliot’s involvement typically prompts demands for board-level changes, indicating that a call for alterations in BP’s leadership structure, including the chairmanship, is expected.